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Difference or Ratio: Implication of Status Preference on Stagnation

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  • Yoshiyasu Ono
  • Katsunori Yamada

Abstract

We consider a dynamic macroeconomic model with households that regard relative affluence as social status. The measure of relative affluence can be the ratio to, or the difference from, the social average. The two specifications lead to quite different results: with the ratio specification full employment is necessarily realized, whereas with the difference specification persistent shortages of aggregate demand and employment can arise. Furthermore, using the data of an experiment of affluence comparison we empirically find that the difference specification is far more persuasive than the ratio specification. Thus, the present model provides an analytical framework for persistent stagnation.

Suggested Citation

  • Yoshiyasu Ono & Katsunori Yamada, 2012. "Difference or Ratio: Implication of Status Preference on Stagnation," ISER Discussion Paper 0856, Institute of Social and Economic Research, The University of Osaka.
    • Handle: RePEc:dpr:wpaper:0856
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    6. Pascal Michaillat & Emmanuel Saez, 2022. "An economical business-cycle model [Breaking through the zero lower bound]," Oxford Economic Papers, Oxford University Press, vol. 74(2), pages 382-411.
    7. Daisuke Matsuzaki & Yoshiyasu Ono, 2025. "Economic Stimulus Effects of Product Innovation Under Demand Stagnation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 27(6), December.
    8. Michau, Jean-Baptiste & Ono, Yoshiyasu & Schlegl, Matthias, 2023. "Wealth preference and rational bubbles," European Economic Review, Elsevier, vol. 156(C).
    9. Pascal Michaillat & Emmanuel Saez, 2015. "The Optimal Use of Government Purchases for Stabilization," NBER Working Papers 21322, National Bureau of Economic Research, Inc.
    10. Wang, Gaowang & Zou, Heng-fu, 2025. "Romer Meets Weber-Schumpeter: The Spirit of Capitalism, Entrepreneurial Drive and Long-Run Growth," MPRA Paper 126518, University Library of Munich, Germany.
    11. Thomas Aronsson & Sugata Ghosh & Ronald Wendner, 2023. "Positional preferences and efficiency in a dynamic economy," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 61(2), pages 311-337, August.
    12. Xu, Shaojun, 2023. "Behavioral asset pricing under expected feedback mode," International Review of Financial Analysis, Elsevier, vol. 86(C).
    13. He Nie & Jordan Roulleau-Pasdeloup, 2023. "The promises (and perils) of control-contingent forward guidance," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 49, pages 77-98, July.
    14. Pascal Michaillat & Emmanuel Saez, 2021. "Resolving New Keynesian Anomalies with Wealth in the Utility Function," The Review of Economics and Statistics, MIT Press, vol. 103(2), pages 197-215, May.
    15. Daisuke Matsuzaki & Yoshiyasu Ono, 2023. "Economic stimulus effects of product innovation under demand stagnation," ISER Discussion Paper 1204, Institute of Social and Economic Research, Osaka University.
    16. Murota, Ryu-ichiro, 2019. "Negative interest rate policy in a permanent liquidity trap," MPRA Paper 93498, University Library of Munich, Germany.
    17. Kazuma Inagaki, & Yoshiyasu Ono & Takayuki Tsuruga, 2022. "Accounting for the slowdown in output growth after the Great Recession: A wealth preference approach," ISER Discussion Paper 1174, Institute of Social and Economic Research, The University of Osaka.
    18. Ikefuji, Masako & Ono, Yoshiyasu, 2021. "Environmental policies in a stagnant economy," Economic Modelling, Elsevier, vol. 102(C).
    19. Hashimoto, Ken-ichi & Ono, Yoshiyasu, 2020. "A simple aggregate demand analysis with dynamic optimization in a small open economy," Economic Modelling, Elsevier, vol. 91(C), pages 89-99.
    20. Qichun He & Yulei Luo & Jun Nie & Heng-fu Zou, 2023. "Money, Growth, and Welfare in a Schumpeterian Model with the Spirit of Capitalism," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 346-372, January.

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